Rallis India Ltd

NSE:RALLIS

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good morning. And welcome to the Rallis India Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand over the conference to Mr. Gavin Desa from CDR India. Thank you, and over to you, Mr. Desa.

[Gavin Desa]

Thank you. Good day, everyone, and thank you for joining us on Rallis India Limited's Q1 FY '23 earnings call. We have with us today Mr. Sanjiv Lal, the Managing Director and CEO; Mr. S. Nagarajan, the Chief Operating Officer; and Ms. Subhra Gourisaria, Chief Financial Officer.

Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation.

I now invite Mr. Lal to begin proceedings of the call. Over to you, Sanjiv.

[Sanjiv Lal, executive]

Thanks, Gavin, and good morning, everyone. Thank you for joining us on our Q1 FY '23 earnings call. I have along with me, Mr. Nagarajan, our Chief Operating Officer; and Ms. Subhra Gourisaria, our CFO.

I'll begin the discussion with a brief overview of the industry before I move to Rallis-specific developments. On a sectorial level, as most of you are aware, we had a slow start to the monsoon till July first week. However, the monsoons have picked up with cumulative rainfall being 11% above normal till 13th July on an overall basis. For the season, up to July 13th, 30 of the 36 subdivisions have received excess or normal rainfall with a cumulative rains of 306 millimeters against normal of 275 millimeters, which is 11% above normal. Uneven spatial distribution, however, is a concern with 53% of the districts receiving deficient or large excess rainfall. Some key rice growing states like UP, Bihar, West Bengal have received very scanty rainfall this season. Region-wise, while East and Northeast regions received 21% surplus rainfall, North West India, Central India, Southern peninsula are deficit during the week ending July 1, '22. However, we have seen a monsoon pick up pace and are hopeful of good rainfall for the remainder of the season. Delayed monsoon consequentially led lower acreage across states, 5% down as of July 1, on a year-on-year basis. Acreage for major crops were mostly flattish or slightly lower on a Y-o-Y basis. However, with the monsoons picking up pace, we have seen sowing activities increasing, leading to narrowing down of acreage deficit on a weekly basis.

Let me now move on to Rallis-specific developments starting with our headline numbers. We have seen our Q1 revenue grow 16.5% over the previous year. Growth was well balanced with growth around 5%, EBITDA stood at around INR 113 crores with margins of 13.1% lower by about 330 bps. Crop Care growth and margin is on a healthy trajectory. Overall margins were impacted due to lower margin in seeds to liquidate stocks and aging-based provisions on seed stocks. Profit after tax for the quarter stood at INR 67 crore.

Moving on to individual businesses starting with domestic business. We have seen a growth of 17.1%, largely driven by better realization. We have undertaken median price hikes of 4% to 5% during the quarter to offset the impact of higher raw material prices. We have witnessed volume growth during the quarter for herbicides, which enters the crop cycle first. In fungicide, returns on some products from rabi paddy and chilli markets offset Q1 placements. It may be recalled that the disease incidence was lower in rabi paddy and crop condition with chilli was not good last year. However, Q1 is largely a placement season and clearer liquidation trends will become evident in Q2.

Our channel stocks are higher as on Q1 end, as we have consciously stocked up with a view to not miss possible liquidation opportunities in Q2. We expect the channel stocks to narrow down closer to last year's level by H1 end. In terms of new product development, 2 new herbicides for cotton and paddy crops have been commercially launched along with 3 new paddy hybrids and a tomato hybrid during the quarter. We have maintained a good run rate in terms of launching new products. We are specifically working towards gaining market share in certain underserved markets such as MP, UP and Rajasthan across crops such as soybean, wheat and certain segments of paddy.

Moving on to our international business, we have seen a good growth driven by volume, as well as realization. Demand for most of our products continues to remain encouraging. Metribuzin sales, as indicated in previous calls, should pick up Q2 onwards. We remain buoyant on the exports demand and will continue to work on augmenting our portfolio. Q4 FY '22 performance, as you will recall, was impacted by challenges surrounding raw material procurement for pendimethalin. In order to avoid such incidences in future and lower our dependence on China, we have identified a local partner to supply raw materials to one of our key products. While cost-wise, we may not see any material impact, this arrangement will help us secure raw materials in a timely manner. Furthermore, as indicated earlier, we are also working towards increasing the share of formulations on this front and we have obtained registration for all 27 states in Brazil for an acephate formulation and our on course towards commencing shipments from Q2.

In terms of contract manufacturing, as highlighted in our previous call, we signed 2 new contracts during Q4 FY '22. While the quantum may not be material in the near term, this development is reflective of our renewed focus towards scaling up the business.

Moving on to the Seeds business, while on a broad level, the business environment continues to remain challenging, we have seen a flat revenue over the previous year. The overall pace of growth was impacted by delayed monsoon, which impacted liquidation. We also witnessed segment shift patterns in the paddy crop. Demand for cotton seeds was impacted due to delayed monsoon in Maharashtra, affecting sowing activities and increased usage of illegal HT cotton seeds. However, we are pleased with the growth of our new cotton hybrid, Diggaz, in the markets of Punjab and Rajasthan where we have increased our volume to 1.75 lakh packets from about 20,000 packets last year. Notwithstanding the growth you saw in Diggaz, the seeds environment was challenging due to segment shifts. We have revised the strategy for the business with a greater focus on liquidation, cost optimization and more robust evaluation of new product pipeline advancements. Work towards building our rabi portfolio and scaling our presence in vegetable business is also progressing as per schedule. We continue to remain cautious in our Seeds business and we are hopeful that we will be able to address the portfolio issues in the coming years.

On the biotech front, we have received state NOC from Haryana and Karnataka for conducting our BRL trials for insect resistance and herbicide-tolerant cotton and maize GM events. We are awaiting final approval from the regulator, GEAC, after which we hope to commence the trials in this financial year.

To conclude, while we have started the year on a steady note, we expect business to pick up pace H1 onwards, especially on margin fronts on the back of new capacities, new product launches, better product mix and a wider distribution network. Our focus, as we have reiterated in earlier calls, is to accelerate the volume growth and we are focused on achieving the same.

This concludes my opening remarks, and I'll now hand it over to Subhra for an analysis of the financials.

[Subhra Gourisaria, executive]

Thank you, Sanjiv, and good morning, everyone. Thank you for joining our Q1 earnings call. Let me quickly walk you through our financial performance for the quarter, post which we shall commence the Q&A session.

Starting with the top line, our revenues for the quarter stood at INR 863 crores as against INR 741 crores generated during Q1 FY '22, a growth of 16.5%. Within that, Crop Care growth was 26.5%, driven by 16.3% price growth and 10.2% volume growth. Domestic business had a growth of 17.1%, primarily due to price hikes taken last year and during the quarter to partially offset the impact of rising raw material prices. International business reported a growth of 50.8%, driven by both volume and value. Seeds business generated revenue of INR 267 crores during the quarter.

EBITDA for the quarter stood at INR 113 crores as against INR 122 crores generated during the corresponding period last year. Crop Care EBITDA has improved to 9.5% versus 8.1% last year, primarily due to leverage impact coming from growth. Seeds margins were impacted due to lower realization owing to the commercial interventions for stock liquidation and aging-based provisions of INR 13 crores recognized on inventory. PAT margins stood at 7.8% as against 11.1%, lower by 330 bps, primarily on expected lines given the higher input prices. While we did undertake price hikes during the quarter, the quantum wasn't commensurate with the increase in raw material prices. We expect the margin trajectory to start improving as several raw material prices cool off and our capacity utilization in the plants starts to improve. Profit for the quarter stood at INR 867 crores as against INR 82 crores during Q1 '22.

Moving on to business-wise performance, domestic business performed reasonably well. Overall volumes were relatively subdued due to returns on the rabi paddy market. You've seen the monsoons pickup pace and now spreading across regions, resulting in improved overall acreages.

In terms of new product launches, we introduced 2 products in Crop Protection segments during the quarter. We're focused on delivering a strong volume growth and are undertaking the requisite steps towards achieving our objectives. We have done a thorough analysis of portfolio and identified missing gaps in terms of products and regions and are hopeful of improving our product mix in coming years. With gradual restoration of normalcy, post-pandemic, we're also intensifying our engagements with farmers, dealers, retailers.

As far as international business is concerned, we have seen a good growth of 50.8% during the quarter. The growth was driven by both volume and value. We continue to see good demand for our products. Price growth may come under pressure with raw material prices cooling off in some products. However, our endeavor would be to continue to drive volume growth on the back of expanded capacities. We are working on supply resilience to ensure steady and consistent availability of raw material and lower our dependency on China for meeting our basic requirements. While the unit economics may remain the same, we would be assured of key raw materials, which will help us to better plan our operations and meet the customer requirement.

Moving onto the Seeds business, the overall environment continues to remain challenging. We also witnessed a shift in the crop pattern in cotton and paddy crops during the quarter. Given last year's experience, we have recalibrated our strategy with a focus on liquidation, cost optimization and more robust evaluation of new product pipeline advancements. We are hopeful that our performance during the quarter would be relatively better than the previous year and our efforts will ensure more resilient and profitable business going forward.

A quick word on CapEx before I hand over to the operator. As indicated in the previous call, the overall CapEx for the year would be INR 250 crores. Our immediate focus would be on commissioning of the multipurpose plant later during the year and commercial scale of 1 new technical Difenoconazole, of which we spoke earlier.

To conclude, I would like to reiterate that we're focused on growth in the business and are undertaking all the requisite steps towards achieving it. While the Seeds business may remain a bit soft during the year, we're hopeful that domestic and international business should pick up course -- should pick up pace during the course of the year.

That concludes the opening remarks. We can now commence the Q&A session.

[Operator]

[Operator Instructions] The first question is from the line of Aditya Jhawar from Investec Capital.

[Aditya Jhawar, analyst]

My first question is on export business. Now you highlighted that in June month we did a record month of INR 100 crore. So was there a lumpiness because of some [ reason ]?

Secondly, you also mentioned that metribuzin, the capacity will come in Q2, so should we expect the run rate that we saw in June will be further built on? And if you can elaborate on what has been the trend in metribuzin prices and raw material?

And last question on exports is that, you -- in the last call, you had mentioned that pendimethalin was facing some issue of raw material shortage. Has that been sorted out? So that -- these were the questions on the export business.

[Sanjiv Lal, executive]

Thanks, Aditya. Yes, in fact, I would say that the exports business has been doing well for the last couple of quarters. And there has been -- from our side, there has been a volume increase, as well as we've been able to take some price increases. So we expect to continue on a reasonably good trajectory as far as exports are concerned. While the INR 100 crores in the month of June is a good milestone to achieve. I would say that we will be fairly close to getting those kind of numbers but it cannot happen month-on-month as you would appreciate. It also depends on the season and the phasing of the business at the customer end. So we will see decent exports happening from the capacities that we have built up.

As far as pendimethalin is concerned, yes, we did land up in a stock out situation. The situation still remains fairly tight for the -- one of the key starting materials. We are managing with some local suppliers as well. We expect that the situation to be fully normalized only towards the end of the calendar year. So that may still take some time to play out.

Metri, we will see the plant running at capacity towards end of Q2. We still hold some inventory, which we will be working off, so that should also start playing out in a favorable manner.

Anything else, Naga, you like to add?

[S. Nagarajan, executive]

No, I think that covers it. Generally, I think like what you said, this INR 100 crore figure in June may not be interpreted as a run rate figure, Aditya. However, we are definitely witnessing good growth on the exports front.

[Sanjiv Lal, executive]

[ And I would like to just ] mention that the prices are tending to be on the higher side. So once the prices softens, while the volumes may still be there, the revenues will start looking lower because of the price changes.

[Aditya Jhawar, analyst]

Okay.

[Sanjiv Lal, executive]

That is why I am giving you a little heads up on that, because it is both volume as well as price. Prices are tending to be on the higher side, but these will also ease off at some stage.

[Aditya Jhawar, analyst]

Right. The second question on the domestic Crop Care business, firstly, on the margin front, this quarter we saw, on a Y-o-Y basis, despite these headwinds of RM, an inventory adjustment, we still did about 150 basis point expansion Y-o-Y. So is it fair to assume that this probably could be one of the lowest margin and from here on with the liquidation expected in Q2 and the raw material -- lower raw material prices also kicking in, we should see a meaningful margin buildup in Q2 onwards?

[Sanjiv Lal, executive]

So I would say more towards end of Q2, Aditya, just to be very careful, I'm saying that because we do still have some inventory, which may be at a higher price. So it will take time to work off and perhaps towards the latter part of Q2, we will see more normalization happening as far as our margins are concerned.

[S. Nagarajan, executive]

Yes, no, I think that is right. I think on the domestic front if you disaggregate the business, Aditya, on the domestic front, we have like what was mentioned by Sanjiv in the opening remarks, taken about 4% to 5% median price hikes in the quarter compared to March end, which on the revenue front when you compare quarter-on-quarter like was mentioned, there is more than 10% pricing differential, which also builds in the mix effect there. So on the domestic front, I think we have been able to reasonably pass on the cost increases.

On the international front, we have had good demand and we have had improved realizations, but certainly on the margin front, we have had some challenges because of the cost of raw material that we have got. That is something which we do expect will run off -- the old raw material will run off, thereby providing the benefit when we buy the fresh raw material at lower prices. But of course, that the impact on GC will depend on how the realizations move from a competitive point of view.

The third aspect is, of course, the Seed business, which, as you know, there was a specific impact which we had taken with regards to aging-based provisions and also reflecting the trends of liquidation that we are seeing as of now based on the monsoon effect. So that's how maybe we will disaggregate into 3 broad businesses.

[Aditya Jhawar, analyst]

Just last one if I can. This seed provision...

[Operator]

I'm sorry to interrupt Mr. Jhawar. Yes, sir. The next question is from the line of Varshit Shah from Veto Capital.

[Varshit Shah;Veto Capital;Founder, analyst]

Just continuing with the earlier question, I mean, I think Naga mentioned that roughly Y-o-Y increase is 10% in the domestic Crop Care segment, you delivered 17%. So actually volume growth is in the range of 6%, 7%, that's the implication from these numbers. So actually, this is a very healthy growth. I mean, considering that because of the challenging weather event and I know there are a lot of placement. But still, it seems like a very healthy growth on your part. And the stocks are slightly -- placement is slightly higher compared to industry. So is it true to assume that you're looking to kind of improve your market share overall in H1, if I see the season as a whole, and that seems to be working at least for the time being?

[S. Nagarajan, executive]

So maybe I'll just clarify here, Varshit, the Crop Care growth was 26.5% quarter-over-quarter, that is last year quarter, of which 16% was price growth and 10% was volume growth, but this is Crop Care, which includes both the domestic business as well as the international business and we have had the benefit of volume growth more in the export business. In the domestic business, that is, if you take our Crop Care within India, we have had volume growth more in the herbicide business but -- herbicide category, I should say, but on fungicides, like was mentioned, we did have some returns that happened in quarter 1 from the placements which we had done in Q4 of last year, which offset the placements to some extent that we did in Q1. However, as you correctly observed, Q1 in the domestic market is largely a placement season and with the range improving, our expectation is that, liquidation should pick up. But this is where we are at this point in time on the domestic business.

[Varshit Shah;Veto Capital;Founder, analyst]

Sure. Second, on the margin front in the Crop Care segment, I mean, if I were to see post recent capacity expansion over the last 1 year, you have increased capacities across AIs. So your reliance on metribuzin has actually come down as a mix, I'm saying. I think post expansion also the reliance would be much lower compared to what it was 2 years ago on metribuzin. So this broad basing of the international business, in my opinion, should diversify the risk emanating from a particular molecule going haywire in terms of margins. So do you think that from a 2-year perspective, the margins in international business will be more stable than it was in the last 2 years? I'm just -- directionally I'm talking, not specific numbers I'm talking.

[Sanjiv Lal, executive]

See, Varshit, what you say is right, that having more products in the portfolio is derisking in case of 1 particular AI having difficulties in certain markets. Our other approach on our international business is to have a better proportion of the formulated product business. And basis on the work, which has been done over the last many years, we are seeing progress. As you are aware, we had launched a formulated product from metribuzin in Brazil last year, that is also picking up well, that's doing well. And this year, during Q2, we will be starting export of a formulated acephate product as well. So we will be using levers of portfolio expansion for the AI category with a new product, which we will be launching towards the later part of this year from the new entity, and also to increase the share of business coming from the formulated product. And that will be across geographies. Of course, the key geography of Brazil is very important. But also we're getting reasonably good traction for the smaller -- from the smaller markets as well.

Naga, you like to add something?

[S. Nagarajan, executive]

Absolutely. I think what you said is what I just wanted to reiterate. Varshit, yes, I think we will be increasing the portfolio, we will be increasing the markets that we will be selling to and we will be increasing the proportion of formulations in the overall international or exports revenue. All of these are part of our strategy what we articulated also sometime back to stabilize the margins and even improve them.

[Sanjiv Lal, executive]

And on metri, just to clarify, we have built a capacity, which is significantly higher than even our own expectation of business. So that will always be there in terms of having that capacity available, which we will also be using for some other product is what our current planning is. So from about 1,100 tonnes capacity, which we had about 3 years back, we are now at a significantly higher capacity of almost 2,300 tonnes. So while we would certainly like to see this entire capacity being filled with metri, but we'll be happy with significant utilization, even 60%, 65% capacity utilization is good.

[Operator]

The next question is from the line of Rohit Nagraj from Centrum Broking.

[Unknown]

Sir, first question is again on the international business. So 1, in terms of supply chain challenges, are those alleviating and will that have an impact from the supplies coming from competitor? And what gives us the confidence that second half or rather Q2 onwards, international business will certainly perform well? Is it some POs that we have or customer commitments that we are currently having?

[S. Nagarajan, executive]

On the supply chain front, I think if you compare between, let's say, December end, December '21 end and June '22 end, certainly, we could say that things are looking a lot more sanguine than what they were at December end. Raw material prices are also coming down for quite a few of the raw materials. The logistic challenges that we were witnessing in December, which actually worsened subsequently after the invasion and also the fuel cost increases, the crude price increase, all of those things seem to have come a little bit lower at least until in June end or now, let us say, in the middle of July. But one should also add that this comparison if you did with, let's say, 2 years back how the situation was, certainly, the challenges are there, but short time scale of last 6, 7 months, certainly it seems to be improving.

With regard to outlook for Q2, we are in conversation with customers. We are having indications at this point in time. We don't have contracts completely for the whole of Q2 but certainly, I think what we're finding is the demand environment appears to be quite positive.

[Operator]

Mr. Nagraj, do you have any other question?

In the meanwhile, we'll move to the next question, which is from the line of Amar Maurya from AlfAccurate Advisors.

[Amar Maurya, analyst]

Yes. Couple of questions from my side. I'll just spell out all the questions at once. So first thing is this, sir, the high cost inventory, which we are mentioning about metribuzin, or the high cost RM, in March, the total inventory was around approximately INR 900 crores. Out of that, how much would be the high cost inventory, which is currently sitting in the balance sheet? That is #1 question.

Number 2 in the international business, what would be the CRAMS contribution in this particular quarter and specifically in the June quarter? I mean, in the June month, what would be the CRAMS contribution? That is #2 question.

And second -- third question is, what would be the volume growth in the overall export business?

[Sanjiv Lal, executive]

So Amar, we will not like to specifically call out the CRAMS business from the exports business.

And as far as the cost of inventory is concerned, Subhra, you like to add something on that?

[Subhra Gourisaria, executive]

So the cost of inventory will progressively, as we said, by the end of Q2 start unwinding and what we were talking was at a weighted average level we should be, by the end of Q2, be in a much more comfortable position in terms of margins are concerned.

[Amar Maurya, analyst]

Okay. But sir, why I'm asking this CRAMS business specifically because I believe last year majority of the CRAMS business contribution was diminished significantly because of the PEKK issue or the metri issue or other things. So I'm saying, if you can just indicate that whether those businesses are now coming back?

[Sanjiv Lal, executive]

No, no. So I'd also like to clarify, our contract manufacturing business, you're aware that we've got about 2 contracts that have been there with us for many years. While 1 contract has been very steady, the PEKK business for the applied practically the last 2 years, we've done very little.

[Amar Maurya, analyst]

Correct.

[Sanjiv Lal, executive]

We've now got some positive indication on some movements that we expected towards Q4. So in anticipation of getting the PEKK plant back on stream, we have started the overhauling of the plant, so that we are ready by the end of the year for getting the plant restarted because there is some silver lining that we see in terms of getting back into production for PEKK. So there is a positive note, which is there. But the order is still not in hand, but we've only got an indication that there could be some requirement coming towards end of this financial year. Does that clarify?

[Amar Maurya, analyst]

Yes. And what would be the volume growth in export business?

[Sanjiv Lal, executive]

Export volume growth is about...

[Subhra Gourisaria, executive]

Equally split between volume and more or less equally split...

[Sanjiv Lal, executive]

About 25%, 26% is the volume growth and balance is the price growth, Amar.

[Operator]

The next question is from the line of Saurabh from Asian Markets Securities.

[Saurabh Kapadia, analyst]

Sir, first question on the June exports. So was the jump because of any specific geography or specific molecules being exported this month?

[Sanjiv Lal, executive]

Yes, we've had a good offtake of most of our products, including acephate. So I would say, it's balanced. The only product where we have not really had the kind of traction is on hexaconazole, this is also not the season for the key market in which it goes. We expect hexaconazole volumes to also look good towards Q2, Q3.

[Saurabh Kapadia, analyst]

Okay. Sir, my second question on this export only, you mentioned you are focusing on the formulation side. So what is the current mix of formulation in the export and what's the target maybe by next year you want to achieve?

[Sanjiv Lal, executive]

Well, I think in terms of the mix it may be about 5%, 6% -- 20% I'm corrected by my colleague, it's 20%. So we would like to see it improve. See, again, this goes through a registration process cycle. So as the registrations keep coming in, this will certainly improve, but 20% is good. Even though we may have a larger export portfolio, 20% will still look good.

[Saurabh Kapadia, analyst]

Okay. Sir, the next question on the seed side, so you already taken some write-down in the Q1. So do we further expect to take some write-down in Q2 as well if there is some further issue in terms of liquidation?

[Sanjiv Lal, executive]

No, no. We'll have to take that call once we have a clarity on the liquidation because there has been some delay in the Seeds business as mentioned due to some pause in the monsoon during the month of June. Sowing activities have picked up and we are monitoring the liquidation of the stocks that we have lying with the trade and we will be starting to get back unsold stocks during Q2 and the complete clarity will be there with us only by October. So we will take a view on what is coming back. As of now, our teams are doing a great job in terms of trying to get the liquidation done.

[Saurabh Kapadia, analyst]

Okay. And sir, on the realization --. Okay. I'll come back.

[Operator]

The next question is from the line of Rohan Gupta from Edelweiss.

[Rohan Gupta, analyst]

Sir, question is on our Seed business because it's a very seasonal and Q1 is very heavy and a lot of profit is loaded in the current quarter itself in Q1. With the margin pressure in the current quarter, do you see that the current year Seed business profitability will be impacted and the chances of having losses or maybe almost nil profit in the current year? Or you see that Q2 can pick up in terms of some of the improvement in EBITDA and margin-wise?

[Sanjiv Lal, executive]

So Rohan, I think it is going to be a challenging year for us. Normally Q1 is the quarter where most of the heavy lifting is done. And based on the way the season has progressed in Q1, as a matter of prudence, we have factored in certain provisions. We really need to see how Q2 goes before we are able to give a full year's outlook. But I would just say that we are ourselves looking at this business very, very cautiously just to make sure that we able to keep it as a stable business. Things have not been very good last year and this year also I would say, has been challenging.

[Rohan Gupta, analyst]

So sir, would be possible for you to quantify the kind of write-downs we have factored in the current quarterly in Seed business, inventory write-downs?

[Sanjiv Lal, executive]

Yes. Subhra mentioned that, but I'll just request her to fill in. Yes, go ahead, Subhra.

[Subhra Gourisaria, executive]

Rohan, we mentioned INR 13 crores for the quarter and this is not a write-down, this is a provision. So we've taken a provision of INR 13 crores.

[Rohan Gupta, analyst]

Okay. Sir, coming on our export business, definitely, you mentioned that one of the best month ever seen in the history of the company with INR 100 crore kind of turnover. Still we see that our export business in terms of the utilization level and in both in formulation, as well as in technical plant, can you just give some number that what are the utilization level that our plants are operating right now in Q1? And you also mentioned that you see that in second half you see further pickup in export business. So where we see that, from where we are getting that confident? I know that you have in the previous participant question also tried to answer that. Just some more granularity about it that from where we are seeing that the growth coming in export business, whether it's international business higher acceptance for our product? Or you see that the global supplier of those products are phasing out and that's where the opportunity for us?

[Sanjiv Lal, executive]

I think there is a robust demand for all the products that we have in our portfolio, Rohan. Just to say that our acephate plant is running flat out. As far as the metribuzin plant is concerned, it will be running at about 50-odd, 50%, 55%, 60% capacity utilization. Our pendimethalin plant is running close to about 70%, 75% utilization and our hexa plant is currently running at a slightly lower utilization because of the seasonal requirement, which is slightly on the lower side. But what we've also done in the last 2 years, Rohan, you would be aware that we have been upping the capacity of our plants. So all these numbers that I'm giving in terms of capacity utilization are based on the enhanced denominator in terms of capacity. So there is good headroom that we have in availability of product from our existing assets.

[Operator]

The next question is from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

Just a couple, you alluded to the flooding and excess rainfall in a large part of the country, especially in Southern India. So just wondering if there might be some reasons for concern for the domestic season for the rest of the kharif season remaining. If you could please just share your perspective on that?

[Sanjiv Lal, executive]

Actually, we were referring to some parts of the country where there has been excess rainfall. As you know, Northeast was quite badly affected. But at this stage, it is very much looking positive. Certainly, the last 15 days of rainfall has been good. There have been places where the rainfall had been lower earlier, it seems to be picking up. And at this point in time, I don't think we have any such expectation or any anticipation for the peninsular India. We will see how it goes because as you know, it's always quite difficult to predict how the weather conditions turn. But as of now it looks fairly encouraging.

[Abhijit Akella, analyst]

Okay, sir. And second thing I just had is, you had provided the volume versus price break down for the export business this quarter, you said it's roughly half and half. Would it be possible to share the same for the domestic business? That was one.

And also in terms of pricing, you have been -- the industry has been taking price increases in the past several quarters. Now with raw material prices starting to cool off, how do you see pricing trending in the next quarter or over the balance of FY '23?

[Sanjiv Lal, executive]

Yes. So on the domestic Crop Care, as you know, we had mentioned about 17-odd percent growth; 14-odd percent is coming from price and about 2%, 3% is coming from volume.

With regard to the raw material prices, yes, there is a drop in specific raw material prices. But the final product prices we are more governed by the cost of treatment that we are able to provide to the farmer, the competitive actions that are there. So those have been more our guiding factors. We will have to see how the whole context plays out in Q2. But you are right, I think there are certain organizations that seem to have indicated some price reductions, but we will actually have to take it product-by-product and deal with it in the quarter as it comes.

[Operator]

The next question is from the line of Vishnu Kumar from Spark Capital.

[Vishnu Kumar A.S., analyst]

Broadly on export and international strategy, if you could help us understand how you're thinking on this space in the next 2 to 3 years? You did mention that you are taking registrations in U.S. -- sorry in Brazil, for acephate. In the next couple of years, if you could give us some idea how should we think you will be adding more capacities here? Or also, you will be focusing more in terms of registration directly? In that sense, if you could help us understand that?

[Sanjiv Lal, executive]

Yes, Vishnu, actually what we have mentioned in the past also, currently, if you look at our Crop Care business, both domestic and international, about 33%, 34% is comprised of the exports business. And we are working towards making it a little more balanced with about 40% of our revenues intended to come from our exports business. To support that, we have been adding capacities. We also building a new facility for commercializing new AIs, which are new to our portfolio. And for that the registration activities have also been started. And apart from that, we had also -- I had also alluded to our formulations that we are applying for registration in many more countries. Some of the products that we have are good for other countries as well. So we are working on that as well. So we will be looking at a 60/40; 60 domestic, 40 exports portfolio, maybe 3, 4 years down the line.

[Vishnu Kumar A.S., analyst]

Okay. The domestic business obviously is erratic and rains play a bigger role in it, but wanted to understand specifically would we deploy more capital in terms of adding more capacities? Any CapEx number that you can probably, at least in the ballpark that you would be doing over the next couple of years on this side of the business? And also, if you could help us understand any new people have been added on the international side of the business where you have either hired them from some other larger MNCs? And again, any specific revenues that you till now achieved on your registration business? Any -- if you could help understand on these lines?

[Sanjiv Lal, executive]

So in terms of registration, we are certainly pressing ahead with registration of our newer AIs in the key markets. And as far as people are concerned, we've got a fairly good robust team and they're doing a reasonably good job in terms of getting, not only more business from existing customers, but also newer customers being added to our customer list. So that is looking quite satisfactorily. And we will, of course, take decisions on adding more resources if needed. But as of now we are in a good place. We had already created a new line of business focused specifically on contract manufacturing that we had alluded to earlier. So we've got a team for our contract-related business, custom synthesis business and that team is supported at the back-end with an R&D team as well. So there are people at R&D who are working only with the custom synthesis business team for ensuring that whatever are the inquiries that are coming are getting converted into samples and progressing with the registration for exports as well.

Does that answer your question, Vishnu Kumar?

[Vishnu Kumar A.S., analyst]

Yes. Any revenues that you've got on direct selling...

[Operator]

Sorry, to interrupt, Mr. Vishnu Kumar, you will have to rejoin the queue, please.

The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited.

[Bharat Sheth, analyst]

Sir, my question is related to Seed business. I mean, you are working on developing a multiple new seed since over a -- largely dependent what was on the cotton seeds and now we have already started paddy. So can you give some more color on the Seed business? How we are looking from 2-, 3-year perspective?

[Sanjiv Lal, executive]

So Bharat, actually, if you look at our portfolio, we've got -- largely our business coming from field crops. And amongst the field crops, the biggest revenue is coming from paddy only. And we have millet, we have got cotton and we've got maize, right? So these are our key field crops. We, of course, do small amount of sunflower and those other crops as well. And then we've got a very small vegetables portfolio, which is about INR 20-odd crores; INR 20 crores, INR 25 crores, is a business that we are building, both through our own products, as well as through in-licensing of the seeds, vegetable seeds. This quarter Q1 itself, we have launched 3 new paddy hybrids in the market and these will be scaled up over time.

Cotton is a relatively new part of our portfolio and these having achieved a peak about 3 years back in terms of number of packets sold, the quantity of -- the quantum of business, we've been doing on cotton has been declining because of the issues that we are seeing in terms of proliferation of illegal cotton. So the size of the market, which is addressable market by organized players has been shrinking year-on-year. But even within this shrinking market, we do see some ray of hope because one of our products which we had launched last year, this is a cotton hybrid called Diggaz. This we launched in Punjab and Rajasthan. So this has done better than our expectations in terms of offtake. From about 20,000 packets, which we sold last year, this year, we are out-looking close to about 1.75 lakh packets. This is small, but for us it is big. Small in the sense of the total industry, which sells close to about 400 lakh packets. So out of 400 lakh packets, 1.75 lakh packets is very small, but for us, it is very good development because it's giving acceptance to the segment in which we have positioned this particular hybrid.

Would you like to add something more, Naga?

[S. Nagarajan, executive]

Yes, no. I think you've covered it, Sanjiv. Maybe just I would say that as a strategy we are trying to sort of fix some of the portfolio gaps that we have. As Sanjiv alluded to, paddy is our largest crop. We are in the top 3 in the country as far as paddy is concerned. But we also have certain segments in which we are trying to bring new hybrids, so that we can plug those gaps. In maize, we have a challenge in terms of the portfolio that we have for the rabi maize. So that is an area of focus. We have been working on that for some time, and in fact, one of the things that we are really intensifying doubling down on is trying to improve our R&D outcomes as far as our rabi and spring maize portfolios are concerned. Bajra is another crop where we have a relatively better position. We are in the top 3 in bajra in the country. And here, we will be augmenting more hybrids in the different segments.

Cotton, like what Sanjiv said, we have had some green shoots we think in the North Indian markets, Punjab and Rajasthan. We have to strengthen our portfolio in the South and Central zone as it's called Maharashtra, Gujarat, Telangana, these markets. So our focus from an R&D perspective is to improve our offerings in this particular segment. So that's broadly what we are focused on. In addition, because of the difficulties we have faced last year and this year in seeds, cost focus is certainly one of the areas that we are focused on.

[Bharat Sheth, analyst]

Okay. Sir, on this Crop Care, what is our innovative index as on today? I mean, last year was -- and how do we see that moving?

[Sanjiv Lal, executive]

Bharat...

[Operator]

Mr. Sheth, I'm sorry to interrupt. Mr. Sheth, I would request you to join the queue, as there are many other participants waiting for their turn.

The next question is from the line of Viraj Kacharia from Securities Investment Management.

[Viraj Kacharia, analyst]

Yes. I just had 2 questions. First is on the RM part. So post the price increase, which we have taken in the domestic business and you also kind of alluded that raw material price are easing. So the under recovery in the raw material cost is by and large through in domestic business or any perspective you can share that?

And second is, earlier in the -- to one of the questions or one of the participants, you said something on 20%, I just couldn't quite get it. What was it related to? Yes.

[Sanjiv Lal, executive]

Yes. This 20% was related with the proportion of our formulation business in the export portfolio, Viraj. And you had alluded to this question on under-recovery and RM prices. What we mentioned is that, we would see the -- this getting corrected towards the latter part of Q2.

[Viraj Kacharia, analyst]

Okay. So this 20% is as of today, as we speak, the formulation in domestic and international.

[Sanjiv Lal, executive]

Yes.

[Viraj Kacharia, analyst]

And as the registrations which we have got in Brazil, this will over a period of time should increase?

[Sanjiv Lal, executive]

Yes, 20%, 22%, 24%, that would be okay because our overall export portfolio will also grow. So having a reasonable proportion of formulations will be a good idea because it tends to give us more opportunities in more markets.

[Viraj Kacharia, analyst]

What I really meant is, is there a margin difference, say, in exports vis-a-vis technical?

[Sanjiv Lal, executive]

Yes, there is a margin difference. Margins are more favorable for the formulated business.

[Operator]

The next question is from the line of [ S. Ramesh ] from Nirmal Bang Equities.

[Unknown Analyst]

The first question is on the cost side, your other expenses have gone up very sharply. So what is the kind of trend we should see for your other expenses for the year?

[Subhra Gourisaria, executive]

See, other expenses is composed of various elements. One big part of it is freight and ocean freight, both ocean freight and inland freight, which is both volume linked and also given the steep inflation we're seeing both on diesel hikes and also ocean freight. That will continue to see an increase. The rest of it is -- because other expenses, it's a semi-variable cost, some components of it will be variable, some are fixed. So to that extent there may be a reduction going forward, but it all depends on how the external factors in terms of [ freight ], et cetera, play out.

[Unknown Analyst]

Okay. And the second thought is on the target for exports and the current share of exports. Sir, is it possible for you to give us some sense in terms of the key markets and their share in the exports like U.S., Brazil, if possible?

[Sanjiv Lal, executive]

Yes, I think the big markets that we export to are U.S., Brazil. We sell in Europe as well. We also have relatively a smaller amount, but we also sell in Southeast Asia. So it's fairly widespread. The dominant market is U.S.

[Unknown Analyst]

Okay, sir. One last thought, so if you're looking at the share of exports going up and the overall quality of the business will be more driven by the ability to grow your top line without much impact on the margins or do you see some impact on the margins as well when your share of exports go up?

[Sanjiv Lal, executive]

See, margins sometime tend to be a function of the competitive pricing, right? So in certain markets where our product is registered, there they tend to be a little more stable. So the pricing will be impacted by competitive pricing as well, Mr. Ramesh.

[Operator]

The next question is from the line of Bhawana Israni from Anand Rathi. Ms. Israni, there is a lot of disturbance from your line. I would request you to go to a quieter place and ask your question.

[Bhawana Israni, analyst]

Hello? Now is it clear? Yes. Sir, my question is currently crop nutrition business is contribute around 5% to 6% to our revenue. So anything is coming from the export market or is completely the domestic -- from domestic market?

[Sanjiv Lal, executive]

Yes. Crop nutrition is presently entirely domestic. But there are some opportunities in the neighboring countries which we are exploring. So there could be some export, but very small in the near future.

[Operator]

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

[Sanjiv Lal, executive]

Thank you. As we had started on a positive note, I must also end on a positive note. The overall sentiment for monsoons is good and agriculture has started showing progress during July. We are in the midst of the liquidation season for our crop protection portfolio and all efforts are on to ensure successful liquidation of our products, including our Seeds business and we are working to expand our business in the international markets as well. Agrochemical industry is witnessing significant volatility in prices and we will continue to work in an agile manner to navigate the same by taking market benchmark pricing decisions.

With that, we can close the call and we will again connect 3 months from now with our September results.

[Operator]

Thank you. On behalf of Rallis India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.